Data Backs Manchin’s Optimism

Charleston Daily Mail, August 15, 2005

Gov. Joe Manchin says West Virginia 's current economic success is unprecedented, and the numbers back him up.  "We're having the best economy right now -- it's the best year in the history of West Virginia ," Manchin told a crowd in Fairmont last week. Indeed, a case can be made that West Virginia 's economy is doing very well.  Just look at the state's coffers.  "Right now in terms of operating finances, the state's in very good shape," said Mark Muchow, the state's director of fiscal policy.

In the last decade or so the state's general revenue has grown an average of 2 to 4 percent each year, depending on how well things were going in the general economy, but "last year we had general revenue growth of 13.7 percent," Muchow said. General revenue grew from $3.1 billion to $3.5 billion. "Other than maybe some periods in the late 1970s when we had double-digit inflation or a year when we had a significant tax increase, this is probably the best year in revenue growth we've had," Muchow said.

Energy prices have been rising and "higher energy prices overall are good news for state coffers," he said.

Four sources of revenue accounted for about 87 percent of the overall growth in the state's general revenue in the financial year that ended June 30, Muchow said. They are:

• Personal income tax revenue, which grew by $101.9 million or 9 percent. "We had some good employment gains, including in the goods-producing sector," Muchow said. Also, real estate was strong in some markets, including the Eastern Panhandle, Morgantown , and Greenbrier and Putnam counties, he said.
• The lottery's contribution to the general revenue fund increased by $100.2 million or 79 percent from the prior year. Lottery revenue had been conservatively estimated because Pennsylvania was expected to become a competitor, but didn't. The jump in revenue "was a nice contribution that is not likely to be repeated once Pennsylvania gets its act together," Muchow said.
• The combined corporate income and business franchise taxes rose 55 percent, adding $99.3 million to the general revenue fund. "That's a huge gain -- not something you'll see every year," Muchow said.
• Energy prices went up, and the severance tax on coal and natural resources jumped by $63.7 million or more than 30 percent, from $184.3 million to $248 million. "That was a hefty increase," Muchow said.

Although higher energy prices helped pump up general revenues, they did not boost the state road fund. The road fund is the main source of money for financing and administering the state's highways. "It had only one percent overall growth last year," Muchow said.

Steve Shackelford, supervisor for research, information and analysis in the state Bureau of Employment Programs, said one barometer of the economy is the real gross state product. It is defined as the market value of all goods and services produced by labor and property in the state, adjusted for inflation. It reflects buying power, and its growth "is a sure sign of increased business activity," he said.

Real gross state product rose 1.6 percent from 2000 to 2001, 2.6 percent from 2001 to 2002, 1.0 percent from 2002 to 2003 and 3.8 percent from 2003 to 2004, Shackelford said.

"The state's economy is diversifying, starting to get into other areas besides manufacturing and coal mining," he said. "The economy is getting into high technology, tourism. I think the state is truly open for business," he said, echoing Manchin's favorite slogan.

And then there's the job market.

"It is exceptional right now in terms of the unemployment rate," Shackelford said. Although West Virginia 's jobless rate in June climbed seven-tenths of a percentage point to 5.0 percent, it was still the lowest June rate posted since the state began keeping records in 1976. "That goes along with the national situation," Shackelford said. "The nation is seeing increased business activity. We're seeing much the same thing here."

Shackelford cautioned that the economy and the job market are different things. "The unemployment rate is a lagging indicator -- a snapshot in time," he said. "Sometimes people try to correlate lower unemployment rates with an improved economy and sometimes they don't mesh."

A mid-year review of the state's economy, published last month by West Virginia University 's Bureau of Business and Economic Research, is full of positive numbers. "The state jobs recession is finally dead," the review declared. "After losing 8,300 seasonally-adjusted jobs from the first quarter of 2001 to the fourth quarter of 2003, the state has subsequently added 12,400 jobs by the first quarter of 2005. In other words, the state is once again breaking new ground in employment."

The review reported that the state's mining sector has added 3,000 jobs since the fourth quarter of 2003 as high energy prices translate into more production activity in the state. Construction employment rose by 3,400 jobs in the same period.